Today we’re excited to share a presentation by Larry Weinstein from MaxLawCon 2021! Tune in to learn about saving money on your taxes.
Larry works with business owners to structure their affairs to legally reduce the taxes that they pay and keep more of their hard-earned dollars in their pocket where it rightfully belongs. He is the author of a number of books, including The Official Business Owner’s Guide to Selecting a Business Entity-How Every New and Existing Business Can Choose the Best Entity to Operate Their Business-Attorney Edition AND Nine Mistakes Attorneys Make That Cause Them to Overpay Their Taxes …AND Eight Major Changes of the New Tax Law-How the New Tax Law Will Affect Your Practice and Your Family-Attorney Edition.
1:29 strategic tax minimazation
4:49 share your knowledge
9:26 AGI
13:59 asset strategy
17:18 schedule c
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Transcript: How Every Lawyer can LEGALLY save $10,000 or More Every Year On Their Taxes with Larry Weinstein
Becca Eberhart
In today’s episode, we’re sharing a presentation from Max law con 2021. Keep listening to hear Larry Weinstein as we share his talk how every lawyer can legally save $10,000 or more every year on their taxes. You can also head to the maximum lawyer YouTube channel to watch the full video. Have you grabbed your ticket to this year’s conference? If not head to max law con 2020 two.com to get yours today. Now to the episode,
Speaker 2
run your law firm the right way. This is the maximum lawyer podcast, podcast your hosts, Jim hacking and Tyson metrics. Let’s partner up and maximize your firm. Welcome to the show,
Larry Weinstein
Tyson and Jim here. Before I began, I just wanted to thank them for letting me be a speaker here. I’ve been friends with Jim and Tyson since I think I met him, John is your mastermind experience that they didn’t they hadn’t even thought about maximum lawyer at the time. And it’s amazing what they’ve done. This is a great group of people a lot of sharing, both here and also in the Facebook group. So today, we’re going to talk about how every attorney can legally save $10,000 per year in taxes. So you know you’re in the right place. And I’ve got a bunch of information, I’ve got probably two hours of information and 20 minutes to present it I’ve cut a lot of stuff down. But if you think you’re paying too much in tax, if you know that you’re paying too much in tax, you haven’t ever considered strategic tax minimization. Or there might be some people that don’t even know this strategic tax minimization is possible. So I’m going to deliver as much information as I can, I’m not going to unintentionally hold anything back, I’m going to give you real actionable information, all meat, no potatoes, I personally dislike tremendously when I hear a speaker and they say in a few minutes, we’re going to tell you this in a few minutes, we’re going to tell you that an hour later, they haven’t told you anything. And this is not just theory, the stuff that I’m sharing with you is what I use with my own clients. And it’s gonna be real actionable, all meat, no potatoes. Two things I really want to get across for you today, I want to change your mindset that everybody keeps hearing about mindset. I want to change your mindset as it relates to taxes. And also I’m going to give you some strategies, I’m gonna give you strategies, we’ll talk about the strategy, I’m going to give you an example of the strategies. First, a little bit of definition of what a strategic tax minimization is basically structuring your affair so that you can legally reduce your taxes. And this is also known as tax avoidance. It’s completely legal as opposed to tax evasion, which usually there’s some element of fraud involved, you have to look at the intent. And what we’re talking about is not something along the lines of overstating your expenses, or understating your revenue. That’s called fraud. And that’s not what we’re talking about today. The differences between minimization and compliance. If we’re talking about strategic tax minimization, we’re really talking about being proactive, we’re making history, we’re not just recording history, as opposed to the usual thing, tax compliance and preparation is reactive is recording history. So tax compliance is different than tax minimization. And the reason that I’m telling you this is I actually did a YouTube video once. If you’re not paying for strategic tax planning or minimization, you’re not getting tax minimization. Because putting the numbers in the boxes, we’ve already done our minimization planning strategies before we prepare the tax return, not denigrating the fact that we have to prepare a complete and accurate return. But the heavy lifting has already been done before we get to preparing the tax return. So I don’t know anything about anybody in here. So I can’t really say that everybody’s overpaying their taxes, because I don’t know you, if I saw your situation, I might be able to give you some ideas. And it’s like, if I can give you some ideas, then you’re probably overpaying your taxes. But it’s not just putting the right numbers in the right boxes. In my business, there’s somebody called fully depreciated Fred, I don’t know if you’ve ever heard of him, but he’s just the guy that’s just not thinking ahead, just putting his head down getting the taxes done. Okay, is tax planning legal courts have upheld that tax planning is legal. There’s an old quote from Judge Learned Hand from 1935. But there’s nothing illegal or nefarious about structuring your affairs to legally minimize your taxes. Now, we’ll talk about who am I, I’m a CPA for a long time, like 33 years. I’m a host of the successful lawyer podcast. I’ve written a number of books, and there’s a book writing expert right over here, John Fisher. I had him on my podcast talking about books, but has anybody here written books by the way, it’s a great thing to do to build up credibility and authority and to share your knowledge with your potential clients. But most importantly, the reason I’m putting this who am I? This is my lovely family. And that’s Jennifer on the right. She’s now 24 And I just graduated college couple years ago and Melanie 21 Both adopted for I’m China, you can tell they don’t look exactly like me, they look a little bit or my wife, so they look a little bit different. But now my CPA told me that if I use that picture that I can write off my photography equipment. It’s a joke, which is extensive. Okay, is there really such a thing as a tax loophole? That is kind of a pet peeve of mine to somebody’s talking about a tax loophole, to me a loophole suggest that there’s a problem in the tax code, and that somehow we’re manipulating or we’re taking advantage of a mistake in the tax code. The truth of the matter is, sometimes when they sign into law, taxes, there are some problems, but they always come back usually and do a technical corrections, and they fix it. So what we’re talking about is not taking advantage of a situation that I found something that we can do it this way and get it to go, No, this is all perfectly legal. So I don’t think there’s really such a thing as a tax loophole, there could be some minor mistakes when they signed the bill into law, but they always fix it. Okay, tax planning now is more important than ever, I’m not gonna go through all of this, but it was it was passed at the end of 2017. It became effective in 2018. The one of the big changes is they instituted something known as the qualified business income deduction, the Cubii deduction, we’ll talk about that later, when we get into the Larry sixpack, many lawyers qualify for the Cubii deduction, which basically equals 20% of qualified business income, which is your net income. That’s the good news. lawyers were specifically targeted by the IRS to limit this benefit, as we’re CPAs as war medical professionals. So they thought maybe that we make too much money. The reason being CPAs, lawyers, doctors were not classified as what’s called SS TB is specified service trader business. And the bad news is, if you are an SS TB, the qualified business income deduction can be phased out, and it phases out on between, well, you can see the chart there 163, and 213, if you’re single, if you’re married, filing jointly is between 326 and 426. The essence of it is we’re looking at the taxable income that I’ll define in a minute. But if you’re single, and you’re making more than 213,000, a taxable income. And if you’re married filing jointly more than 426, and you’re an attorney, you’re not going to get the Cubii deduction. But that’s the bad news. The good news is, that’s not the only strategy, I’m going to go into what I call the Larry six pack in a second. So it’s still possible to lower your taxes. And it might be possible, I’ve had situations where somebody came to me and they didn’t qualify on the face of their situation for the qualified business income deduction, which is a nice thing to get. But at the end of the day, after the planning, we were able to get get them to qualify for whatever the strategies that they implemented and the qualified business income deduction. Okay, some definitions. At the end of the day, there’s tax free income, and there’s deferred income, let’s talk about tax free income first. If you increase your expenses to get a tax deduction, that’s going to reduce your income. As you reduce your income, you reduce your taxes. Therefore, if you get a tax deductible expense, I would actually say that creates tax free income tax is not pay or never paid is tax free income. Thereby I agree with that. The other thing I need to make the point is generally what we’re talking about, we’re being able to make something tax deductible, that we’re probably already spending money on anyway. Put another way, it’s taking money out of this pocket and putting it into this pocket, same money, we still control the money versus tax deferred tax deferred means you put it off to sometime in the future. And that’s really what we’re talking about with the retirement strategies. Tax might ultimately be paid in the future, you certainly get a tax deduction in the current year, which is a good thing, but who knows what you’re going to be earning when you go to retire. I mean, I’ve heard people talk about the fact that you might not be making as much money but who wants to be making less money and living on less money when they’re retired, you want to make the same money or more. So it really depends upon the tax bracket when you go to retire. Real quickly, I want to go over how taxes are calculated because at the end of the day, I keep talking about taxable income. We look at the income from all the sources and then there’s some minor adjustments to income and we get it is anybody heard of Adjusted Gross Income AGI that’s the adjusted gross income. And then we get to deduct either itemize or standard deductions, the Cubii deduction, the 20% of Cubii income, and that gets us down to taxable income. Just so you know, that’s how you calculate the taxable income and then we calculate the federal income tax on the taxable income. The reason that I’m telling you this is the tax rates range from 10 to 37%. And I want to just give you a really easy way to go through and when you look at the one I’m going to share these strategies with you, you can look to see which ones of them apply to you about what is your what we will call your marginal tax rate. And you can multiply the two together add up all the strategies, what they all add up to be multiplied by the marginal tax rate, which is simply the last dollar that you earn, how much is that being taxed at? And I’ll show you the tax tables in a second. Okay, let’s just call it if you’re married filing jointly and your 628,000 in taxable income, then, if at the very bottom, you’re paying 37%, okay, so let’s say you’re, if you’re the taxable income, and making in the effect of the marginal rates 37%, the next dollar that you earn is going to be taxed at 37%. How many people live in a state that has a state income tax? Not Texas, but Okay, so you would take what is it 5%? It depends on where you are 5%. So now 37 plus five is 42%. That’s almost 50%. So the key thing is to look at the marginal tax rate, where are you in this table, the last dollar that you earn, what is it being taxed at. And I put together this little worksheet here, if you just list out the strategies and how much each strategy is worth to you, and then you add up what all of the strategies together are, which of these are the deductible expenses, and you multiply it by your effective tax rate, not your effective, your marginal the last dollar, that’s going to tell you what your tax savings are. So you can probably walk away and do this calculation either here or when you get home. I call it the Larry six pack. There’s six major strategies and I’m going to go over them in detail entity asset family fringe benefit and Cubii qualified business income and retirement strategies. Entity strategies. We’ll start off with that. That’s how you choose to form your your business. And it determines everything. There’s both non tax and tax considerations, what taxes are paid, and how much pass through or non pass through. Okay? All of the entities with the exception of a C Corp are passed through entities. Okay. So if you want to qualify for the qualified business income deduction, you have to have a pass through entity. Most lawyers in here probably doing that already. The other comment that I have here about types of entities federally recognized not state, you might see LLP is their limited liability partnerships limited liability company, you might see them in the legal profession, known as like a P LLP, professional, LLP or professional LLC. Those are the ones that the IRS recognizes LLC and LLP.
Speaker 4
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Larry Weinstein
Asset strategies, that’s number two, who owns the asset is this a business asset or personal asset. One of the nice things in the tax code is what’s called a section 179. Immediate expense election. Z bi ever heard of that? Basically, if you buy an asset, you can write it off in the year that you purchase it. And that reduces your taxes immediately in the first year. Now, if you do that you can’t deduct it as a depreciation in the following year, you only get to deduct it one time. But a lot of people think that with the time value of money, a tax deduction today is better than a tax deduction later on. There’s also what’s called 100% bonus depreciation, which does a similar thing. And I just talked about some limitations that were raised on the section 179 family strategies. That’s the third one. This is typically we call this income shifting what it is is taking advantage of lower tax rates. What happened with the new tax law that will started in 2018 is they changed the standard deduction and the personal exemption And, and they kind of put it together. For single people that’s now $12,000. And change for married people is $24,000. For the couple, the way that this typically works is you would hire either your children or your parents. If you hire your spouse for this particular strategy that doesn’t do anything, because if you deduct it down here on Schedule C, or on an S corp, or partnership, or whatever, so that number goes down, line seven is going to go up, that’s the wage line. So that’s not going to do anything. The rules about income shifting, if you’re going to hire your children, they have to be above age seven, because there’s a famous court case called the LR case, they have to legitimately work if it’s your children, or your parents or whatnot, they have to do legitimate work. When I say straight face, if you’re sitting across from an IRS auditor, could you keep a straight face, okay, you have to pay fair market rate, you have to document it, what they’ve done, what they did the time you know, timesheets and things like that. There’s a potential if it’s a sole proprietor, if you’re functioning as a sole proprietor as a partnership, there might be some employment tax savings. In other words, you wouldn’t have to pay Social Security Medicare tax on the beautiful thing about this strategy, because the standard deduction is 12,500, you would be able to pay them 12,500 To your child if they’re old enough above age seven, and they won’t pay any tax on it. But you would have paid tax on it. So that’s a really good strategy. Once again, not your spouse, although you might consider hiring your spouse for the next strategy. That was what the third one for his benefit strategies, this is going to show you how you’re able to deduct health care costs, that might be in your situation that you won’t be able to deduct your health care costs, because you are not able to itemize because the itemization now is $24,000. married filing jointly. Okay? It might be because you’re able to itemize, but the medical expenses have to exceed seven and a half percent of your adjusted gross income. So if you’re making $100,000, your medical expenses would have to exceed $7,500. And you might not be able to itemize because of that. And the other thing is, if we’re able to do what I’m getting ready to tell you, it might potentially it might reduce your self employment tax as well, if you’ve got a Schedule C because we get to deduct it as a Schedule C expense. And that reduces your self employment income. And it reduces your federal income tax and your self employment tax. So that’s a double whammy, as opposed to being on the front of the tax return as an adjustment to income, which certainly will reduce your taxable income and your federal income tax, but it will do nothing for your self employment tax, which is everybody knows that’s 15.3%. Okay, the way that we do this, is we adopt what’s called a section 105 MediCal reimbursement plan. Here’s the trick. And this is why you might want to hire your spouse, it would be for the benefit of your employees, which would be your spouse, and their spouse, which would be you. So that’s the way you do it. It works best for sole proprietors, partnerships, C corporations, there’s special rules for S corp, so it doesn’t work as well there. And it allows for the deduction of medical expenses, which otherwise may not be deductible. So that’s a really good strategy. And that could be a really big, that could be something really nice, because a lot of the like, I’m paying about 1500 bucks a month for myself and my, my youngest daughter, it’s a lot of money. Okay, these are the type of expenses that are covered pretty much everything, there’s no need to buy any new coverage, you’re basically able to deduct money that you’re already spending plan has to be formally documented, you can do the documentation yourself, I always say that if you’ve got other employees, other than just you and your spouse, you might want to hire a third party, it doesn’t cost very much money to do all of the documentation. You don’t have to pre fund anything and it helps you save federal income tax and also save self employment tax if it’s deducted as a business expense. Okay, there’s ways in which you can legally exclude people, sometimes people don’t want to do this, if they’ve got employees, there’s ways to legally exclude employees, and you can read that for yourself. And then some people just if this is big enough firm, they just buy the insurance for everybody and they also get a tax deduction. Okay. Qualified business income, it’s got to be a pass through entity is reducing taxable income Institute as many as the strategies that we just discussed other than Q BI. And as you Institute those strategies, that’s going to reduce your taxable income. As you reduce the taxable income, your qualified business income will go up. So the objective is to lower the taxable income. And the six from Valarie six pack is retirement strategies. Everything that we discussed up until this point was tax free income, it’s getting some expenses from this pocket to this pocket. This is something a little different. This is retirement strategies. This is deferred income where you get a tax deduction today, you may or may not pay tax sometime in the future. So you get a tax deduction. If, at the end of the day the government is incentivizing you to save for your own retirement to take advantage, there are the some of the types of retirement plans that you can get into. They all have different pluses and minuses. They all have limitations. The current tax deduction, grows tax deferred. whatever plan you select is going to determine, be determined by how much you want to invest, how generous you want to be to your staff, you want to encourage participation, you want to maximize many times people want to maximize the benefit to the owners. And it also depends upon the age and income of the owners as to what what would be the appropriate plan. Getting Real near the end, I’m actually zero. I prepared a tax cheat sheet for lawyers. It’s tax cheat sheet for lawyers.com, which basically listen, it lists the six things that we talked about, not in terrible detail, but it kind of gives you what they are. I went really fast. I know I only had 20 minutes, you might have a question based upon what I mentioned, and you don’t know how it would affect you and your situation or you didn’t understand this strategy at all. I set up a website, ask Larry a tax question.com. That takes you directly to my calendar programs scheduled once so you can get a chance for us to talk. Are there any questions for referring it’s kicking the can down the road? Yeah. So it definitely reduces it reduces taxable income reduces taxes, when you think about retirement? Well, that that money would not be if you haven’t earned, when you said defer the fees you haven’t you had didn’t earn it. So you’re not going to be able that will be your retirement plan. The deferral, the deferral of the fee, by itself will be the retirement plan. But there’s no tax benefit. The tax benefit for doing that would be you didn’t recognize the income and you didn’t pay the tax. Okay. But it’s not like putting money aside in a 401k and getting a deduction. So I know I was going really fast, I apologize. At the end of the day, did anybody learn at least one or two things that they didn’t know about? Okay, taking a lesson from one of my mentors, Mr. John Fisher, if you think that I’ve shared some information, or I kind of maybe know what I’m talking about, if you would kindly do me a favor, and I set up another URL, right larry.com If you kindly go and it takes you right to my Google my Google My Business page and leave me a review if you haven’t already done so, I would really appreciate it. Thank you so much for the opportunity to share this with you.
